More Proxy Advisor Insights: Through The Looking Glass (Lewis)
(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)
December 5, 2011
As I reported in this prior post, the recent Proxy Disclosure Conference sponsored by CompensationStandards.com (subscription site) featured a session called “The Proxy Advisors Speak”, featuring insights from representatives of ISS and Glass Lewis on how to gain their positive recommendations. This is critically important in the upcoming season of Say-on-Pay advisory votes on executive compensation.
David Eaton, the Glass Lewis representative, made these points:
- Glass Lewis, like ISS, evaluates its Say-on-Pay recommendations on a case-by-case basis. Glass Lewis focuses on four key issues: compensation structure; disclosure of policies and procedures; amounts paid; and the link between pay and performance.
- In evaluating pay for performance, Glass Lewis uses a proprietary formula and grades each company “on an A to F forced curve.” They also do a qualitative analysis of program design and implementation, compensation mix and the appropriateness and balance of the metrics used.
- Glass Lewis focuses strongly on the quality of compensation disclosures, grading each company on a Poor/Fair/Good scale. For the S&P 500, the quality ratings for disclosure improved significantly from 2010 to 2011. “Poor” ratings declined from 19% to 5%, and “Good” ratings increased from 15% to 22%.
- Eaton cited the following companies’ disclosures as good examples of the use of CD&A to provide a rationale and justification for committee decisions, not just the requisite facts and figures: Entergy Corp., PartnerRe Ltd., Coca-Cola, W.W. Grainger, Waste Management and Newmont Mining.
- The primary change in Glass Lewis’ policies for 2012 relates to companies that received high negative votes in 2011, generally indicated by a greater-than-25% negative vote (compared to the 30% threshold used by ISS in its updated policies). For these companies, Glass Lewis “. . . will look for language in the proxy that the compensation committee is taking last year’s vote seriously and have engaged with large shareholders. We will hold compensation committee members accountable for a failure to respond.” Their policy is less specific than ISS’s new policy for such companies (see my most recent post), but it places similar importance on engagement and disclosure of the engagement.
- Glass Lewis is open to meeting with any company outside of the solicitation period and “proxy season blackout periods.” Further, they publish their reports an average of three weeks before the annual meeting, allowing for sufficient time to revise reports in the event of errors or omissions.
Eaton also reported that Glass Lewis hosts “Proxy Talk” conference calls to discuss a shareholder vote or issue in depth. These calls are generally used when there is a major issue, such as a proxy fight or shareholder proposal, but Glass Lewis offers this vehicle generally as a way to facilitate engagement between public companies and institutional investors. If the company requests a call, Glass Lewis’ research team representatives serve as moderators, and shareholders can submit questions, providing an open forum “. . . to provide further color on specific issues”.